European Central Bank President Mario Draghi says policy makers talked about the possibility of undertaking quantitative easing at their policy meeting. Here’s a recap of our live blog detailing the comments and the market reaction.

The euro popped higher even though the ECB was generally expected to leave rates unchanged. The focus is on Draghi, who will take the podium in Frankfurt at 2:30 p.m. local time, or 8:30 a.m. Eastern. The shared currency /quotes/zigman/4867933/realtime/sampledEURUSD is changing hands at $1.3775 versus $1.3760 in North American trade late Wednesday. It had traded at $1.3757 just ahead of the rate announcement.

Traders will be paying close attention to any shifts in language as Draghi delivers his opening remarks.

Paul Robson at Royal Bank of Scotland thinks the euro is likely to come under pressure, with Draghi adopting a dovish tone, in part because the need to restrain the strength of the euro is possibly the one thing ECB policy makers agree on most.

In a note, Robson argues:

Though it is unlikely to admit it, reducing the prospect of additional EUR upside is probably the one issue on which the Council agrees the most, not least because if the currency strengthens, more action may be required on conventional or unconventional policy, which would be more unpalatable to a vocal minority on the Council.

One way Draghi could weaken the euro would be by altering his language around the topic of inflation expectations. Draghi in the past has described inflation expectations over the “medium to long term” as “firmly anchored.” Draghi could signal a shift by dropping the word “firmly” or “medium-term” when he talks about inflation expectations, Robson said.

Draghi begins reading opening statement. He says information is consistent with expectation of long period of low inflation. He’s noting subdued price pressure, but does not change the language on inflation expectations, sayng that “over the medium to long term” they “continue to be firmly anchored.”

Draghi says his biggest worry about the euro-zone economy is the prospect of long-term stagnation.

That could lead to a chronically soft labor market and an increase in structural unemployment. Monetary policy isn’t the only factor, he says, saying the concerns also underline the need for structural reforms.

Draghi says policy makers also talked about the possibility of negative deposit rates.

He emphasized, however, that the discussion wasn’t undertaken with the idea that negative rates would help pull down the euro, but were instead focused on how they would help the ECB achieve its inflation target, notes Annalisa Piazza, economist at Newedge Strategy in London.

“We see an output gap that is pretty wide and only gradually closes toward the end of our medium-term horizon,” he says. That’s why the euro zone needs a higher growth rate in order to close a gap that otherwise weighs on demand and stability.

Draghi has previously emphasized the output gap. Richard Barwell at RBS says Draghi’s earlier emphasis on the measure was deliberate. From an earlier note by Barwell:

The inclusion of the output gap in the forward guidance on interest rates was a premeditated response to an improving domestic outlook and heightened expectations of Fed tightening. The reference to the large negative output gap signals that exit from the current accommodative stance should be far in the future. For the record, we have reservations about this strategy given the track record of real-time estimates of the gap.

Draghi says the Governing Council also discussed ending sterilization of previous bond purchases under its Securities Market Program, while the prospect of another long-term refinancing operation was talked about more briefly than other measures.

Asked his preference, Draghi says it’s up to the ECB Governing Council but emphasizes that policy makers are unanimous in the commitment to use both conventional and unconventional measures if needed to cope with the risk of a too prolonged period of low inflation.

The euro has dropped nearly one cent against the dollar since Draghi began speaking (see the intraday chart in our previous post). He said that there was a “rich” discussion of quantitative easing at the latest meeting, but didn’t decide to act. That’s confusing traders, says Andrew Wilkinson, chief market analyst at Interactive Brokers LLC.

In a note, he said:

“QE might weaken the euro currency, while failure to act might lift the unit. Such failure to act might make the onset of QE inevitable in the future. As a result and as the intraday chart clearly illustrates, traders haven’t got a clue what to do with the euro currency!”

Obviously the biggest takeaway is that the ECB has talked about quantitative easing. That left the euro down and provided some support for stocks, though the central bank has long been seen slowly edging down the QE path.

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